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I've been experiencing this issue as well. I go through a cycle of Apple Watch not set up for development. The run destination is not valid for the Running scheme. Error preparing Apple Watch for development. I've jumped through a log of hoops to try to get this to work. I am trying to avoid the ultimate of setting watch up as new watch to get this working. On occasion the app gets installed on the watch, but never launches, and the debug session never starts.
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Thanks. Setting the automaticallyMergesChangesFromParent to true worked for me in the simulator. Brilliant!